Standing Committee G

Wednesday 13 February 2002

[Mr. John McWilliam in the Chair]

10.30 am

Mr. Gareth R. Thomas (Harrow, West): I beg to move,

That, if proceedings on the Industrial and Provident Societies Bill are not concluded at this day's sitting, the Committee do meet on Wednesday 27 February at half-past Ten o'clock and half-past Four o'clock.

I welcome you to the Chair, Mr. McWilliam. As a fellow Celt who also represents a constituency outside my Celtic background, I know that I am in safe hands.

Clause 1

Requirements for conversion of a registered society into a company

The Chairman: With this it will be convenient to take amendment No. 7, in clause 2, page 3, leave out lines 26 to 30.

Mr. Chope: I also welcome you to the Chair, Mr. McWilliam. It is a pleasure to know that we shall be guided by someone of such seniority and experience.

This is a probing amendment. We are all familiar with the principle that the chairman's decision is final, although in cricket that has been modified to include a third umpire. I am a little perplexed why a declaration by the chairman cannot be open to challenge. That seems to be the import of the provision and a similar measure under clause 2. Are there precedents for giving a chairman such power? If so, what are they? I should be grateful if the hon. Member for Harrow, West (Mr. Thomas), could explain the background to the provision.

Mr. Thomas: The amendments tabled by the hon. Member for Christchurch (Mr. Chope) would remove that which is already in section 50(3) of the Industrial and Provident Societies Act 1965, which covers similar duties to be fulfilled by the chairman. One difference under the Bill is the inclusion of proposed subsection (3A)(a), the purpose of which is to impose a duty on the chairman to ensure that membership records of a society are sufficiently accurate for him or her to confirm that a high enough percentage of the membership has voted, and thus satisfy the requirement of a 50 per cent. turnout under clause 1. That is the substantive change to the current position.

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As the hon. Member for Christchurch said on Second Reading, there are many different societies, with varying numbers of members and systems of record keeping. They range from major retail businesses with hundreds of thousands of members to a small club with few members. It is unwise to lay down specific steps to be taken in all instances. The courts would have no difficulty in applying the concept of what is ''reasonably practicable'' when judging whether the number of qualifying members and the number of votes were sufficient. The requirement on the chairman is necessary to protect the interests of all the members of a society. It also gives him sufficient protection. Under the provision, a chairman will consider carefully the consequences of the breach of duty of which he would be guilty should he fail to take ''all reasonably practicable steps'' to check that such safeguards are in place within the society.

The effect of the amendment would be to leave the decision making of societies on this one issue open to interminable disputes as the chairman's declaration would not be deemed conclusive. As I said in my opening remarks, that is in contrast with the general position with regard to the 1965 Act on similar decisionstransfers of engagements, amalgamations and so forthfor which section 50(3) already applies. It would clearly be unsatisfactory should that section not to be applicable and the requirement that reasonable steps should be taken to check to membership lists were deleted.

Mr. Chope: I am grateful to the hon. Gentleman for his comments, but could he explain why there is no specific duty on the chairman to ensure that there are reasonable

''steps . . . taken to ascertain the number of qualifying members of the society'',

because that is not what the clause states? As drafted, it states that at a meeting the chairman's declaration that such steps had been taken will be final. Would it not be better if there were a duty on him to ensure that all reasonable and practical steps had been taken?

The Chairman: Order. That is a clause stand part question, to which we shall come.

Mr. Thomas: I have nothing further to add to my earlier comments other than to say that the effect of the hon. Gentleman's amendment would be to remove reasonable protection of members' interests and reasonable duties on the part of a chairman of a society to protect members' interests and to keep up-to-date records. It would also have the effect of causing considerable confusion as to the reasonableness of the chairman's declaration in a situation in which it is already widely accepted as appropriate under other aspects of the 1965 Act.

The Chairman: Order. Should the hon. Member for Christchurch think that I was unduly cruel, if he directs his thoughts to clause 1(3), he will see that his question is relevant to that subsection.

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The Economic Secretary to the Treasury (Ruth Kelly): I take this opportunity to welcome you to the Chair, Mr. McWilliam. This is the first time that I have served under your chairmanship.

This is an important probing amendment and I thank my hon. Friend the Member for Member for Harrow, West for his comments, with which I am fully in sympathy. He put the case extremely well and articulately. The Government cannot support the amendment.

The purpose of clauses 1(3A) and 2(4) is to allow the chairman of the meeting held to consider a conversion proposal to determine by declaration that the resolution has been carried and that all reasonable steps have been taken to identify those eligible to vote. We believe that such requirements are an important incentive for societies and their members to attend to and scrutinise compliance with formal voting requirements in the context of meetings. That is especially so in this instance, because the effect of the Bill will be to impose a threshold turnout requirement of 50 per cent. of members eligible to vote. The provisions that the amendments seek to remove will draw the attention of the chairman and members to the importance of ensuring that any conversion vote is taken on the basis of accurate information.

The Government believe that the provisions will help ensure that all proper procedures are followed and that conversion votes are as fair as possible. It is also important for societies to have a mechanism available to ensure that proceedings for conversion have a degree of finality about them. Impairment of their ability to do so may open the way to frivolous or vexatious disputes about the results of conversion votes. That is why the Government support the clause as drafted.

Mr. Chope: I am grateful to the hon. Member for Harrow, West for his explanation and to the Minister for her comments. I shall withdraw my amendment, but the provision seems a slightly obscure way of imposing a requirement on a society to keep proper records. The provision imposes a power on the chairman only to make a declaration that all practicable and reasonable steps have been taken.

Mr. Thomas: I understand what the hon. Gentleman is trying to achieve. The difficulty is that, because of wide differences in the types of society that exist and in the numbers of members, it would be difficult to place on societies more specific duties in terms of their membership records. What might be appropriate for a large society might not be appropriate for a small club.

The courts are familiar with the phrase ''reasonably practicable''. The drafting of proposed new subsection (3A) places a duty on the chairman that is not onerous. In the event of challenge, it will allow the court to judge whether reasonably practicable steps have been taken. The precedent for such a change is consideration by the courts under company law of the role and responsibility of directors.

The Chairman: Order. Interventions are supposed to be just that. That was a speech. I have been relaxed, because it is that sort of Committee. When the hon.

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Member for Christchurch suggested that he wanted to withdraw the amendment I should have immediately put the Question, but I allowed him to continue.

Mr. Chope: I am grateful to you, Mr. McWilliam, for your indulgence, and for having allowed the hon. Member for Harrow, West to speak at such length in his intervention, because that has enabled me without further ado to beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Chris Grayling (Epsom and Ewell): On Second Reading and in subsequent discussions, the clause commanded general approval. The hon. Member for Harrow, West highlights an important issue. On Second Reading, we discussed extensively the benefits that such organisations have brought to a range of different areas and aspects of our country and society. I am happy to commend the clause as making a significant contribution and a real difference to the various organisations.